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Five Step S&OP Process

The S&OP process typically encompasses five major steps, involving middle management and others throughout the company who affect or are affected by demand and supply plans, inventory or backlog levels, internal or external capacity issues, financial results, etc.  It culminates in an executive meeting to review recommendations, to decide among alternatives when there are unresolved issues from earlier steps, and to approve the company game plan.     

The normal or typical five step S&OP process is pictured in the figure below.  In our experience, most successful implementers of S&OP use a process similar to this.  In cases where a company has varied from this model, generally speaking the modified process includes the normal five steps plus some minor modifications to accommodate company size or geography, organization and reporting relationships, or scope of operations.     For an explanation of some of these variations, see Sales and Operations Planning Best Practices, John Dougherty and Christopher Gray, Trafford Publishing, 2006.   



The “Five Step Process” typically includes activities for capturing past performance data (data gathering) on bookings, shipments, production, inventory and backlog; sales planning including both forecasting for existing products as well as new product planning and product line rationalization; supply planning; inventory and backlog planning; resolving differences (the partnership meeting, sometimes referred to as the “collaboration” meeting and sometimes as the “pre-S&OP” meeting – a particularly bad name considering the importance of this part of the process), and an executive review meeting.    

Here are a few of the decisions that are made in the S&OP process: 

  • When to adjust resources as well as when to adjust inventories

  • Timing on new product introductions, entrance to new markets and old product phase-outs

  • Strategies for markets and general competitiveness

  • Strategies for dealing with demand uncertainties – surge capacity, safety stocks

  • Reconciliation to the business plan/budget